Q. What happens when there is a lack of demand in an economy?
Answer: Stagnation
Notes: Deficit demand refers to the situation when the aggregate demand for goods and services falls short of the aggregate supply of output. It is produced by fully employing the given resources of the economy. This reduction in demand leads to a decrease in production, employment and prices in the economy. According to Malthus, lack of demand can lead to stagnation. In this both capital and labor are redundant relative to opportunities to employ them profitably.